Taxing people’s bad habits is a tough way to raise reliable revenue, but Illinois keeps trying to do just that.
Bad habits can hurt your wallet on top of your health in Illinois, thanks to the state imposing one of the highest tax burdens in the country.
Excise taxes, or “sin” taxes, are often intended to encourage moderation, but they should be used in moderation.
Excise taxes are regressive, meaning low-income residents give up more of their income than affluent residents.
For example, the Tax Foundation found cigarette taxes hit low-income smokers at three times the rate of rich smokers. Plus, Illinois’ high cigarette excise tax is one of the state’s least reliable revenue sources because tobacco use is on a steady decline.
The stated goals of sin taxes are typically to generate revenue and incentivize better behavior, such as quitting smoking. But it’s impossible to achieve both: if people quit smoking in droves, there’s less revenue from the tax.
Also, a $1 increase in cigarette taxes negatively impacts revenue by over $28 million. A Tax Foundation study found that in fiscal year 2016, Illinois’ per capita excise tax revenue ranked 6th in the nation.
What constitutes a sin is open to interpretation. Chicago considers binge watching your new favorite show a sin, slapping a 9% amusement tax on streaming services such as Netflix and Hulu.
Sports wagering is one of the newest sin taxes. Illinois’ share of sports betting revenue is the 3rd highest of any state.
Instead of inventing new ways to tax Illinoisans, lawmakers should look to the other side of the budget: spending. Revenue shortages will always be an issue when spending increases at an irresponsible rate.
Pensions will consume nearly 30% of Illinois’ budget for fiscal year 2022. The first step in quitting a bad habit is admitting you have a problem.